RDR Series - Forging a new life together

In the event, the dividing line seems likely to be blurred, and the only guidance consumers may receive as to the status of advisers is the inclusion of the word 'restricted' in the tied and multi-tied sales patter.

It may be that the FSA and its political masters took the view that promoting the virtue of independence is less important than maximising the availability of financial advice - or, as some would have it, avoiding further reducing the sector.

A parallel can be drawn with the will-writing market, where the decision was taken not to regulate will writing because this might reduce the availability of the service. One conclusion was that the government would see that it is preferable for a greater number of people to have a will of whatever quality than that a smaller number should have better-quality wills.

However, the fact that the FSA seems to be effectively abandoning its promotion of independence does not mean that it has ceased to be relevant. Independence is a core principle for the established professions, and both the law societies and the accountancy bodies insist their members may only refer their clients to independent advisers for investment advice.

There is further significance in the principle of independence in that, as a result of the Legal Services Act, the established professions are entering a new era in which they will be able to join together in what the Act refers to as alternative business structures. Independent financial advisers are among the potential participants.

It is solicitors who will experience the greatest change. Pundits have predicted that, as a result of the Act, a third of the current number of law firms will cease to exist. Some of this decline will be attributable to consolidation, but equally there will be casualties among firms whose business model proves to be uncompetitive.

Historically, solicitors have had two forms of involvement in financial services work. Either they have referred clients to an external adviser, or they have employed advisers to work in-house. Unfortunately, there have been problems with both models. The external financial advisers were all too often commission-based salespeople who gave solicitors a jaundiced view of financial advisers in general. Moreover, the in-house IFAs more often than not found themselves working among colleagues who made little effort to engage actively with them and who, when serious regulation was introduced by the FSA in 2001, threw in the towe. The number of law firms now providing an IFA service has reduced from around 750 pre-N2 in 2001 to fewer than 50 today.

So, why should solicitors be starting – as they are – to take renewed interest in financial advice? The answer is they are becoming aware of the need to diversify their business model, to reduce their dependence on transactional activity and to provide a more appealing client service, which will assist them to build enduring client relationships. The appearance of the professional, fee-based independent financial adviser is, to say the least, timely.